How Much Have You Earned Over the Years? The Answer May Surprise You

Between housing, student loan payments, groceries and other expenses, you may sometimes wonder where all your money is going.

Between housing, student loan payments, groceries and other expenses, you may sometimes wonder where all your money is going.

Household debt can also be a drag on your income. With an average of $6,662 in credit card debt per U.S. household, you could be paying hundreds per month in debt payments. At the end of the month, it may feel like you didn’t earn anything at all.

But a tool from the Social Security Administration (SSA) shows you how much money you’ve really made over your lifetime. You may be shocked by how much income you’ve earned, especially if you don’t know where it all went.

How to Check Your Earnings Record

The SSA keeps track of your income and taxes paid for Social Social Security and Medicare using your tax returns. It uses this information to calculate your Social Security and Medicare benefits.

You can view your estimated benefits, along with your earnings record, through your designated my Social Security account. If you don’t already have an account, you can create one through the SSA website.

As you walk through the steps to create an account, you’ll need to provide the following:

● Full name, as shown on your Social Security card
● Social Security number
● Date of birth
● Home address
● Primary phone number

The SSA will then ask some multiple-choice questions to verify your identity. For example, you may be asked where you have lived in the past and to share information about your financial accounts.

Once you pass the verification test, you’ll create a username and password. The SSA will then ask for your email address to send you various communications about your account.

After you’ve created your online account, you can log into the site and see your estimated benefits at full retirement age (if you qualify), as well as your last reported earnings. There’s also a link to view your earnings record. Your earnings record includes a comprehensive list of your taxed Social Security and Medicare earnings for every year that you’ve worked.

You can then add up your yearly earnings to see how much you’ve earned since you joined the workforce. The tool is also helpful for seeing how your income has increased over time.

How to Keep More of Your Income

Now that you know how much you’ve made over the years, you may be wondering what happened to it all. Here are a few tips on how to keep better track of your money and hold onto more of it in the process.

1. Create a Budget

If you don’t already have one, then creating a budget is the first step to increasing your net cash flow, or the difference between your income and expenses. Keeping track of your transactions gives you a good idea of where you can cut back.

To set up your budget, start with your take-home pay (not gross income from your SSA earnings record). Then take a look at your expenses for the last month and categorize them. For example, you can create categories such as rent or mortgage payment, groceries, household items, entertainment, etc.

Next, determine areas where you can cut back and set a budget for each category for the following month. During that time, keep track of each transaction to make sure you stay within your spending limit for each category.

This process may be hard in the beginning, but it will get easier over time as you get used to your new habit. You can also compare and use budgeting apps to help make the process easier.

2. Tackle Your Debt

For some people, monthly debt payments make up a large portion of their expenses. Between credit cards, an auto loan and a mortgage, you may be paying hundreds or even thousands of dollars a month toward your household debt.

If you have student debt, for example, consider refinancing your student loans to lower your payment, interest rate or both. Also consider other strategies to pay off debt, such as the debt-snowball or avalanche methods. These approaches help you target one debt at a time, rolling your payments into other debts as you pay each one off. (You can keep tabs on how your debt is affecting your credit by viewing two of your credit scores for free on Credit.com.)

3. Use Bonuses & Tax Refunds Wisely

Once you get into the swing of budgeting, it can be easy to manage your monthly paychecks.

But getting a small windfall in the form of a bonus or tax refund can make it easy to rationalize spending money on things you don’t need. Instead of wasting that money, use it to pay off debt. You can also save it for a rainy day or a future goal.

4. Consider Moving

If you live in a state with income tax, you may be missing out on extra cash every year. There are nine states with no income tax on wages and earnings you could consider moving to — if that’s a feasible strategy for you:

● Alaska
● Florida
● Nevada
● New Hampshire
● South Dakota
● Tennessee
● Texas
● Washington
● Wyoming

Of course, where you live isn’t just a matter of how much you pay in taxes, as your family, friends and job won’t likely come with you. What’s more, some states may make up for having no individual income tax by taxing more heavily in other areas. Make sure you do your research before considering a big move.

Treat Your Money Like You’ve Earned It

You work hard for your money, and it can be devastating to look back at how much you’ve earned over the years and wonder what happened to it all. The better you manage your money, the more of it you’ll keep.

As you budget, pay down debt and learn other money-management techniques, you’ll be able to look back again a few years from now with confidence that you’re on the track toward financial independence.

Image: StockLib

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Meet the Man Who Makes $600 a Month Selling Crickets

When Jeff Neal’s wife told him she wanted to quit her job to stay at home with their kids, he had to think about how to make one income work.

When Jeff Neal’s wife told him she wanted to quit her job to stay at home with their kids, he had to think about how to make one income work. With over $21,000 in student loans, there wasn’t much extra money lying around. Losing another income stream would be difficult.

But rather than give up hope, Neal did something no one expected. He launched a side business that helped bring in extra money: selling crickets online.

Yes, you heard that right. Crickets.

Now, Neal makes $600 a month selling bugs online at The Critter Depot, which helps him pay off his debt. Read on to learn more about this odd side hustle and how Neal has turned it into a steady income stream.

Searching for a Side Hustle

Neal graduated from Temple University and got a job as a project manager. While he made a good salary, he had student loan debt and a growing family. When his wife decided she wanted to stay home with the kids, Neal knew he had to make changes.

“My wife wanted to stay home, so I had to take full responsibility as the sole provider,” he says.

Since his full-time job involves e-commerce, he focused his side-hustle search on online jobs. After doing extensive research, he decided to put all of his efforts on one specific niche.

The area that he identified was in the pet industry; reptile and exotic animal owners need live crickets to feed their pets, but getting them can be difficult — and expensive. So, Neal’s site caters to pet owners, selling crickets of various sizes in bulk.

But before you rush out and buy tanks and crickets to replicate Neal’s success, you should know his approach is even more interesting. He actually doesn’t deal with the crickets at all. Instead, his business is a drop shipping company.

What Is Drop Shipping?

Drop shipping is a business model where the store doesn’t stock any of the items it sells. Instead, when a customer purchases a product, the drop shipper works with a manufacturer — or in this case, a cricket supplier — to fulfill the order. The drop shipper never comes into contact with the product, so wrangling crickets isn’t part of Neal’s day.

“I don’t know anything about raising crickets,” he admits. “They have short life spans and unique nutritional and environmental needs. It’s a lot of work that takes a lot of knowledge. When I set up my business, I found someone who breeds crickets. He takes care of them and ships them; I just handle the orders.”

For customers, drop shipping is a seamless process, whether it’s through Amazon or a private site. Most of the time, you don’t know when you’re buying from a drop shipper. Once your order is placed, the drop shipper works with the supplier to place the order, and you receive the item like you normally would.

Drop shipping can be a mutually beneficial relationship between the seller and supplier. In Neal’s case, he has the marketing expertise and skills to build a successful website and business. That gets the cricket farmer more exposure and more orders than he would get on his own. Neal estimates that he generates about $3,000 in sales each month from The Critter Depot and his cut is $600.

Previously, Neal primarily sold crickets on Amazon. But meeting Amazon’s strict standards is hard when you’re shipping live insects. He ended up taking his sales to just his website, which requires more work for him each day to build traffic.

His new income stream allows him to take advantage of other opportunities, too. He recently purchased the site Jason Coupon King, which generates another $700 a month in revenue.

Balancing a Side Gig With Life & Work

While Neal’s side hustle is successful, he has to balance his work with his full-time job and his family. But that’s why he says drop shipping is a great option. It gives him the flexibility he needs while still allowing him to earn extra money.

“I don’t have a television, so when I come home from work, I just spend time playing with the kids and catching up with my wife,” says Neal. “Once they’re in bed, I work on optimizing my websites, contributing to forums and building links to my sites.”

Neal says he spends an hour or two a day after work on his side hustle and that his business is still growing. The extra income is substantial enough to help him pay off his student loans early and give his family more wiggle room in their monthly budget. (You can keep tabs on your own finances by viewing two of your credit scores for free on Credit.com.)

Making Extra Money

While selling crickets might not be for you, Neal’s story is just another example of the many ways you can make money on the side. If you’re struggling to make ends meet, or need more income to pay down debt or boost your emergency fund, launching a side hustle can be the right approach.

Photo courtesy of Jeff Neal 

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The Best Investment for Your Lump Sum

Whether your lump sum arrived as a tax return, a bonus, an inheritance or a larger-than-expected gift, here are some suggestions for what to do with it.

Money doesn’t usually come out of nowhere, but when it does, it’s nice to have some idea of how to use it. Whether your lump sum arrived as a tax return, a bonus, an inheritance or a larger-than-expected gift from a family member, Shelly-Ann Eweka, a Denver-based financial adviser with TIAA, has suggestions on what to do with it, depending on the amount and how much money you’ve already saved.

Her suggestions apply to two different scenarios: One, if you haven’t maxed out your savings potential and are carrying around some debt and two, if you’re debt-free and have managed to shore up adequate savings. Experts suggest tucking away enough to cover three to six months of expenses in case of emergency, as well as approximately 10% to 15% of your income in retirement savings. So if you’re behind, now’s the time to get started.

If You’re Trying to Save & Have Debt

Here’s how Eweka suggested investing various dollar amounts if you’re behind on your savings and carry debt:

$100

If you have no savings at all, Eweka said to either open an account using the lump sum or split it between a savings account and your favorite charity. Even $50 in an account will start you down the road to saving — sometimes all you need is a push. Be sure the charity is a 501(c)(3) for potential tax benefits, she said.

$500

To grow that $500, Eweka suggested opening an IRA. “Talk to a financial adviser about the benefits and whether your qualify for a Roth and traditional IRA,” she said. “An IRA can offer a great way to help build additional savings for retirement.” If you don’t have a financial adviser, you can learn more about IRAs here.

$1,000

This amount can go a long way when it comes to debt, so Eweka said to focus on that. “Allocate any extra cash directly toward paying down debt, whether from credit cards or student loans,” she said. “Paying down debt as quickly as possible, while also saving for retirement, is critical to avoid high interest.” (Paying down debt can also improve your credit standing. You can see how by viewing two of your scores for free on Credit.com.)

$10,000

If you have no savings, plunking the full $10,000 into an account will make a great start. “To be safe, you should have enough money in your emergency fund to cover all your necessary expenses for [at least] three months,” Eweka said. “That amount will vary from person to person, but you should have enough saved up to cover your necessities in case of a financial catastrophe.”

If You Already Have Savings 

If you’ve maxed out your savings and retirement options, you have more flexibility. Eweka suggested putting the money toward things that will advance your career.

$100

Consider having your resume professionally written and critiqued. Getting ahead in your career is a way to jump-start your personal wealth, and creating the best resume possible can help you climb the corporate ladder.

$500

Use your $500 to have a professional photograph taken, especially if you have a professional website, use social media or need to submit your bio and photo for business purposes, .

$1,000

Most people could stand to make updates to their wardrobe. If you’ve received a $1,000 lump sum, go through your closet and donate anything that no longer fits, is outdated or you haven’t worn in more than a year. Throw out things that are beyond repair or stained. Then use your lump sum to restock with clothing and accessories for a more polished and professional look.

$10,000

Enroll in research classes or certificate programs to enhance your career options. These will help you keep up with your skill set and look fantastic on your resume.

Image: StockRocket

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How to Save Money to Start Your Own Business

When saving up to make the self-employment switch, don't sell yourself short.

Starting a business almost always takes money. When saving up to make the self-employment switch, financial expert Edward Kohlhepp, CFP from Doylestown, Pennsylvania, recommends that you don’t sell yourself short.

“Don’t stop when you have enough to just buy the business,” he says. “You’ll need money for operating expenses such as taxes, rent and payroll, plus you should have six-to-12 months of personal living expenses saved to tide you over until the business begins generating reliable income.”

Here is a four-step plan to help you start cutting costs and save money so you can get your business up and running as soon as possible.

1. Start Budgeting

Budgeting is an important part of any business, so if you haven’t started a budget yet, this is the time. There are several ways you can do this, from an old-school pen and paper system to using budgeting software that lets you manage your household costs in addition to your business finances, so you can keep tabs on your various sources of income all in one place. (Disclosure: I write for Quicken, who produces these types of products.) You can also use a combination of the two or other methods that work for you, so long as you start a budget and stick with it. Remember: Budgets can be fluid, so feel free to adjust as you go.

2. Focus on the Essentials

As you create a personal budget, keep a record of your daily expenses. If an expense isn’t essential, cut it. For example, it may be part of your morning routine to grab a coffee for the commute. But bringing your own java in a travel mug compared to buying a latte every day will save you serious cash after several work weeks. Review your monthly expenses and eliminate those you don’t really need. Some other considerations:

  • Will a Netflix or Hulu subscription allow you to cancel your premium cable service?
  • Do you use your gym membership often enough to justify the cost?
  • How much can you save by buying staple items in bulk?
  • Would using public transportation, cabs or services like Uber be cheaper than owning two cars?

If you find that your excess expenses most often happen while you’re on the road, take your budget with you. Budgeting apps can help you track personal and business expenses on the go from wherever you are.

3. Negotiate for Savings

Only half of all consumers bargain over prices when making a purchase. Yet 89% of those who did were able to get a deal at least once in the past year, according to the Consumer Reports National Research Center.

Even if you find a great price online, services like Amazon and eBay often allow you to negotiate on the price with some sellers.
When shopping for items in person, always keep an eye out for a way to get a deal. Negotiating often works best when you can see the person face-to-face. Here are some strategies:

  • Ask if there is a discount when you pay with cash.
  • Point out a flaw or defect in an item you want, like a loose button on a jacket, then ask if there could be a discount because of it.
  • Ask for a discount when buying in bulk.

4. Eliminate High-Interest Debt

Carrying high-interest debt is an extra financial burden you don’t need when you’re ready to start your business. Calculate how much loan interest is costing you each year and compare that to the interest you’re earning on any investments you may have. If the difference is substantial, it may be wise to pay off those debts immediately. High-interest debt can also impact your credit. You can see how by viewing two of your credit scores for free on Credit.com.

When saving for your business, always consider what your needs may be in the future. For example, if you don’t cancel your credit cards after paying them off, you will have available credit to fall back on should your business suffer a setback.

Image: JohnnyGreig

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5 Ways to Catch Up on Retirement Savings

Whether you haven’t started or life got in the way and you needed to dip into your nest egg, don’t stress because it’s not too late to catch up!

Worried about your retirement nest egg? It’s normal for someone nearing retirement to question how much they have saved — and wonder if their savings will last. Whether you haven’t started or life got in the way and you dipped into your nest egg, don’t stress, because it’s not too late to catch up. Here are a few tips for topping up your retirement fund.

1. Maximize Contributions

If you have access to a company retirement plan, such as a 401K, consider contributing enough to capitalize on a company match. Losing out on a company match can mean missing extra money over the span of one’s working career. On top of taking advantage of the company match, you may want to consider maximizing your contributions. Increasing your contributions may seem intimidating, but putting away a little more each year can boost your nest egg when you factor in the effects of compound interest.

2. Invest Found Money

Of course, not everyone can contribute more to their retirement funds on a regular basis, which makes investing found money a great opportunity. If you’re lucky enough to come into some money, whether from a tax refund, a bonus or money from your wedding, consider directly depositing this money into your retirement account. This way it will never touch your hands or be spent on personal items. For example, if you’re getting by comfortably on your income and receive a bonus, you may want to deposit the difference to help you catch up on saving for retirement.

3. Open an IRA

If you do not have an individual retirement account, opening one can be a great vehicle for stashing away money. Used along with a company plan, a traditional or Roth IRA can mean more income in retirement when the day to hang up your hat finally comes. With both accounts, an individual can contribute up to $5,500 annually, and an extra $1,000 for those over 50. (The extra allowance can help those who are a bit older catch up on saving.) While both savings accounts offer tax incentives at different times, it’s important to understand these tax breaks, along with their income limits, before you decide which account to open.

4. Work Longer

While delaying your retirement may not sound appealing, it can mean more time to build up your retirement funds — and a shorter retirement for which to save. It can also mean delaying Social Security and receiving a bigger monthly check in the future. If you wish to continue working but want to take on fewer hours, consider picking up a part-time job or starting a side hustle. While this may affect your Social Security, it can also mean extra money in your pocket during retirement, less stress and more time to do what you want. Keep in mind, unless otherwise specified, there may be a required minimum retirement distribution, which requires you to withdraw money at a certain age.

5. Pay off Debts

While saving and maxing out your retirement fund is ideal, it will do you no good if you have high-interest debt that continues to build. (See how debt is affecting your finances with a free credit report snapshot on Credit.com.) Your debts can feel like chains tied to your ankles if you don’t get rid of them before you retire. You may want to continue saving for retirement as well, but consider paying down high-interest debt first. Taking debt into retirement can mean less money for your golden years. So if you’re nearing retirement and worried about debt, consider speaking to a debt attorney to see how they can help.

Image: Peopleimages

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5 Ever-So-Simple Strategies for Paying Off Debt in 2017

Here are some tips for paying off debt in 2017.

Want to pay off your debt and save more money in 2017? You’re not alone! According to one survey of Google search data, searches for “Spend Less/Save More” were up 17.47% from 2016. Want to achieve your get-out-of-debt goal? If so, we recommend trying one of the five strategies here.

1. The Debt Snowball

This debt-payoff method, made famous by financial guru Dave Ramsey, has you pay off your smallest debts first. The idea behind the debt snowball is that you get a quick psychological boost from paying off some small debts from the get-go. This gives you the mental momentum to keep going when paying off debt.

To start a debt snowball, list your debts in order from smallest to largest. Use any extra money to pay off the smallest balance while you make minimum payments on your other debts. When your smallest debt is paid off, snowball that debt’s minimum payment, plus your extra cash towards paying off the next debt. By the time you get to the largest debt, you’ll be throwing a lot of money at it each month. (You can see how your debt is affecting your credit by viewing two of your credit scores, with updates every 14 days, on Credit.com.)

2. The Debt Avalanche

This is similar to the debt snowball in that you pay off one debt at a time. But it’s actually the more economical method of paying off debt. Instead of paying off smaller balances first, the debt avalanche has you start by paying off the debts with the largest interest rate.

The debt avalanche is a smart method if you already have the determination to make it through a long debt payoff process without the boost of paying off a few smaller debts early on. It can get you out of debt faster since you’ll stop accumulating interest on high-interest debts much more quickly.

3. The Debt Snowflake

This is a method that can be combined with one of the above options or used to pay off debt in any order you choose. The idea here is that you find small ways to save a few bucks, and then transfer that money saved toward debt payments.

With the debt snowflake method, you’ll need to be exceptionally aware of your spending patterns. For instance, if you normally spend $10 on a lunch out at work, but pack your lunch one day, you could save $5. That $5 is a snowflake that can then go toward paying off debt.

The key to debt snowflakes is to make sure they don’t “melt.” Get into the habit of transferring “snowflake” money to debt accounts immediately, or at least on a weekly basis. Otherwise, you run the risk of that hard-saved cash being used for other purposes.

4. The Credit Card Transfer

If much of your debt is in the form of high-interest credit card balances, consider using balance transfer offers to pay off that debt more quickly. Since credit cards often have interest exceeding 15%, it’s not unusual for most of your minimum payment to go toward interest, even on a relatively small balance. If you can transfer that balance to a card with a 0% introductory annual percentage rate, you can put more money toward the principal balance each month, paying off your debts more quickly.

Be careful, though, to read all the terms of a credit card balance transfer. Most cards charge a fee for the balance transfer. If you’ll pay off the card’s balance quickly, the transfer may actually cost more than it saves. You can find more info on some of the better balance transfer credit cards here.

5. The Half Payment Method

What if you’re on such a tight budget that you can’t even squeak out some extra dollars to start on a debt snowball or avalanche? One option is to start making half of your minimum payment every two weeks. Bi-weekly payments, which may fall when you get a paycheck, can save you money over time on debts that are compounded daily or monthly based on the average balance.

The reasoning behind biweekly payments is somewhat complex. But, essentially, paying more often allows less interest to accrue between payments, which means more of your payment goes toward the principal. Plus, if you make a half payment every two weeks, you’ll actually have made a whole extra minimum payment by the end of the year!

Half payments can help even out your bank account balance and can help bring down your debt balances more quickly. Combining the bi-weekly payment method with another method for applying any extra cash you scrape together toward one debt at a time could be a powerful option for meeting your financial resolution this year.

Image: FatCamera

The post 5 Ever-So-Simple Strategies for Paying Off Debt in 2017 appeared first on Credit.com.

5 Ever-So-Simple Strategies for Paying Off Debt in 2017

Here are some tips for paying off debt in 2017.

Want to pay off your debt and save more money in 2017? You’re not alone! According to one survey of Google search data, searches for “Spend Less/Save More” were up 17.47% from 2016. Want to achieve your get-out-of-debt goal? If so, we recommend trying one of the five strategies here.

1. The Debt Snowball

This debt-payoff method, made famous by financial guru Dave Ramsey, has you pay off your smallest debts first. The idea behind the debt snowball is that you get a quick psychological boost from paying off some small debts from the get-go. This gives you the mental momentum to keep going when paying off debt.

To start a debt snowball, list your debts in order from smallest to largest. Use any extra money to pay off the smallest balance while you make minimum payments on your other debts. When your smallest debt is paid off, snowball that debt’s minimum payment, plus your extra cash towards paying off the next debt. By the time you get to the largest debt, you’ll be throwing a lot of money at it each month. (You can see how your debt is affecting your credit by viewing two of your credit scores, with updates every 14 days, on Credit.com.)

2. The Debt Avalanche

This is similar to the debt snowball in that you pay off one debt at a time. But it’s actually the more economical method of paying off debt. Instead of paying off smaller balances first, the debt avalanche has you start by paying off the debts with the largest interest rate.

The debt avalanche is a smart method if you already have the determination to make it through a long debt payoff process without the boost of paying off a few smaller debts early on. It can get you out of debt faster since you’ll stop accumulating interest on high-interest debts much more quickly.

3. The Debt Snowflake

This is a method that can be combined with one of the above options or used to pay off debt in any order you choose. The idea here is that you find small ways to save a few bucks, and then transfer that money saved toward debt payments.

With the debt snowflake method, you’ll need to be exceptionally aware of your spending patterns. For instance, if you normally spend $10 on a lunch out at work, but pack your lunch one day, you could save $5. That $5 is a snowflake that can then go toward paying off debt.

The key to debt snowflakes is to make sure they don’t “melt.” Get into the habit of transferring “snowflake” money to debt accounts immediately, or at least on a weekly basis. Otherwise, you run the risk of that hard-saved cash being used for other purposes.

4. The Credit Card Transfer

If much of your debt is in the form of high-interest credit card balances, consider using balance transfer offers to pay off that debt more quickly. Since credit cards often have interest exceeding 15%, it’s not unusual for most of your minimum payment to go toward interest, even on a relatively small balance. If you can transfer that balance to a card with a 0% introductory annual percentage rate, you can put more money toward the principal balance each month, paying off your debts more quickly.

Be careful, though, to read all the terms of a credit card balance transfer. Most cards charge a fee for the balance transfer. If you’ll pay off the card’s balance quickly, the transfer may actually cost more than it saves. You can find more info on some of the better balance transfer credit cards here.

5. The Half Payment Method

What if you’re on such a tight budget that you can’t even squeak out some extra dollars to start on a debt snowball or avalanche? One option is to start making half of your minimum payment every two weeks. Bi-weekly payments, which may fall when you get a paycheck, can save you money over time on debts that are compounded daily or monthly based on the average balance.

The reasoning behind biweekly payments is somewhat complex. But, essentially, paying more often allows less interest to accrue between payments, which means more of your payment goes toward the principal. Plus, if you make a half payment every two weeks, you’ll actually have made a whole extra minimum payment by the end of the year!

Half payments can help even out your bank account balance and can help bring down your debt balances more quickly. Combining the bi-weekly payment method with another method for applying any extra cash you scrape together toward one debt at a time could be a powerful option for meeting your financial resolution this year.

Image: FatCamera

The post 5 Ever-So-Simple Strategies for Paying Off Debt in 2017 appeared first on Credit.com.

How to Handle Debt & Maintain Your Mental Health

It’s no secret that most people feel lousy when they’re in financial trouble, and one of the biggest financial stressors seems to be debt.

It’s no secret that most people feel lousy when they’re in financial trouble, and one of the biggest financial stressors seems to be debt. When you’re in debt, simple tasks like going to your mailbox, where you anticipate finding an avalanche of bills or overdue notices, can bring on stress. If you relate to this feeling, you aren’t alone. According to a Time article, there are a plethora of Americans in an excessive amount of debt. In fact, the Federal Reserve reported at the end of 2015 that, on average, an American between the ages of 18 and 64 has $4,717 in credit card debt.

So aside from being a burden on our wallets, what does this debt do to us?

“Financial issues are a common source of stress,” Dr. Jay Winner, director of the Stress Reduction Program for Sansum Clinic in Santa Barbara, California, said. “Additionally, when someone has extensive debt, there is a tendency to work excessive hours. This deviation from a healthy work-life balance leaves people less resilient to other stressors in their lives.”

How Debt Stress Impacts You

Chronic stress is linked to a wide variety of mental health ailments. Dr. Robert Williams, a psychiatrist in Phoenix, explained that long-term stress physically affects the brain through the well-known “fight or flight” mechanism, which occurs during times of perceived danger, such as those experienced when a threat to financial well-being occurs. Williams explained that when the deep limbic system, or primitive brain, is less active, there is generally a positive, more hopeful state of mind. When it is heated up, or overactive from too much stimulation in the form of perceived threats, negativity can take over.

In addition to an overactive limbic system, Williams said some people are born with a thin cerebral cortex. Emotional stability is a manifestation of the cerebral cortex, and studies suggest a relationship between depression and a thinning cerebral cortex. Dr. Williams said the combination of an overactive limbic system and a thinning cerebral cortex could lead to severe depression. Long-term stress from things like too much debt can cause anxiety, restlessness, lack of motivation or focus, feelings of being overwhelmed, irritability or anger, sadness or depression, even thoughts of suicide.

Coping With Debt Stress

If you are stressed because of a financial situation, here are some suggestions from Dr. Winner that may help you cope.

  • Be mindful. Focus on doing one thing at a time with your full attention.
  • Learn a relaxation exercise. Learning to relax for a specified period of time will help you learn to relax through the day and reduce stress.
  • Do not resist the stress. There are not much in the way of health risks from short-term stress; so if you’re too stressed now, don’t stress about being stressed. Just learn some strategies so the stress does not become excessive in the long term.
  • Learn patience. This is important because the emotion most strongly associated with heart disease is anger and hostility.
  • Decrease the frustration of failure. Instead of thinking you are worthless when things go wrong, realize progress comes from learning from our mistakes. Ask, “What can I learn from this?”
  • Keep things in perspective. One way to keep things in perspective is to think of your health, family, friends etc.
  • Take care of yourself. Eat nutritiously and mindfully, enjoying the taste and aroma of your food. Get regular exercise.
  • Have some technology-free time. If you can spend some of that time out in nature, that’s all the better.
  • Talk with someone. If you’re overwhelmed by stress and basic techniques are not helping, discuss this with a physician or mental health professional.

Paying Off Your Debts

Getting out of debt is one sure-fire way to help reduce your stress levels. Of course this is easier said than done, so consider taking small steps toward this larger goal. To start, gather all the information about your debts, including who you owe what amounts to and any interest rates or fees that are applicable to each of the debts. From there, consider what options you have. Can you consolidate your debts? Move the debt to a balance transfer credit card and eliminate interest charges for a while? You may even decide to seek the advice of a professional debt counselor to help you find the right path.

Whatever you do, take a deep breath and keep moving forward. Not only will paying off these debts help your stress, but it will help improve your credit scores. (You can see how paying down your debts are affecting your credit by checking out two of your free credit scores, updated every 14 days, on Credit.com.)

Image: mavoimages

The post How to Handle Debt & Maintain Your Mental Health appeared first on Credit.com.

How We’re Cutting Back Now to Have More Later

cutting-back-expenses

Despite having 13 years of combined experience in financial services when we first started dating, we had a combined total of $51,000 in credit card debt. The old saying, “the cobbler’s kids have no shoes,” could apply, except that was part of the problem. We had lots of really nice shoes.

After we paid off our $51,000 in credit card debt in two and a half years, we created a side hustle to help others pay off debt, save for retirement and live better lives. Now our goal is to turn our side hustle into our hustle.

We’re happy to say we’re halfway there! A few months back, one of us (me, as I’m the one writing this) quit his W-2 job. To maintain financial control, we’ve re-implemented much of what we did when we paid off our debt.

We actually re-implemented most of these practices six months before I left my W-2 job. We did this to ease ourselves back into more restrictive spending. After we paid off our debt about 10 years ago, our spending returned to conscious but comfortable levels. We knew that losing one W-2 income was possible, but it still required an adjustment to our spending behavior and was necessary to grow our business.

If you want to pay off debt, put retirement or college savings on the fast track, or grow your own business, this article is for you.

We Cut Out Comfort Expenses

We never planned to live in perpetuity with the frugal lifestyle that we adopted to pay off our debt. Our goal was to pay off our debt so that we could then improve our quality of life. We were paying $10,000 a year to finance our debt. When we paid that off, we had an extra $10,000 a year in “found money.” Who wouldn’t take that to Vegas?

Well, we didn’t go to Vegas, but we did improve our quality of life with a housekeeper, monthly massages and better wine. We experienced a conscious budget creep.

Our current goal is, again, not to live a perpetually frugal lifestyle but a bigger one. For the time being, however, we’re giving up margaritas at the bar downtown today to have margaritas on the beaches of Mexico tomorrow.

The best way to calculate where to cut back expenses is to itemize all your expenses on an Excel spreadsheet. We’re Excel junkies, and itemized all our expenses for a full six months. This exercise highlighted categories in which we could cut back or cut out. Some categories surprised us. It was not surprising, however, that we could cut back on wine.

Admittedly this exercise is tedious, but it’s effective. For those with less patience or time, we recommend using budgeting apps. These connect to all of your accounts and itemize expenses for you. Some only itemize as far back as each account allows. (For another way to see how your spending is affecting your finances, you can check out your two free credit scores, updated every two weeks, on Credit.com.)

We Resumed Our Pre-Debt-Free Grocery Budget

We’re calling this category out specifically because it’s a large category for most budgets, ours included. When we were paying off our debt, we spent $75 to feed two grown men for an entire week. After we paid off our debt, we increased that to between $100 and $150 by buying higher quality and luxury foods. Organic hummus is not a necessity.

Our weekly grocery budget is now $100. We’re achieving this in a number of ways. Our main grocery store has double-deal Wednesdays. This means that on Wednesdays only, both the previous week’s and the following week’s sales are active. We only shop this store on Wednesdays, and only buy sale items.

When we shop other stores, for personal care or cleaning products, for example, we only buy items that are either on sale or for which we have a coupon. If we’re lucky, we get both discounts.

Figure out the hook your stores use, and don’t take the bait. Use those hooks to your advantage. Only buy sale items or items for which you have coupons.

We’re Back to Free & Cheap

Just as when we were paying off our debt, we know we can’t go from being social butterflies to hermit crabs. With planning, we figure out how to have fun and still reach our financial goals. The operative word here is “planning.” Without financial safeguards in place, we know we’d easily fall off the money train.

Before each weekend, we establish money-conscious plans. Whether it’s a game night at our house, a free concert in our local park, or a no-cost physical activity such as riding our bikes or hiking, we’re scheduled.

We Increased One of Our Retirement Contributions

We adapted this strategy from what we did when we paid of our debt. When we did this, we cut back our 401K contributions to the minimum that allowed us to get the maximum retirement match from our employers. We didn’t want to leave money on the table.

As I work for myself, I have no company retirement match. So we don’t lose retirement savings momentum, we increased my husband’s 401K contribution to make up for my loss on contributions.

As soon as our business makes a profit (we currently only have revenue), I will contribute to a SEP (Simplified Employee Pension) IRA.

All Revenue Goes Back to the Business

This, too, is an adaptation of what we did when we were paying off our debt. Then, we implemented the above strategies and put all the money saved toward our debt. We’ve adapted this for our current goals to put any revenue our business earns back into our business. This is to grow our business so that it will someday support both of us.

Regardless of your financial goals, earmark where all your “extra money” will go. If your extra money doesn’t have a pre-determined destination, there’s a risk it will be spent unwisely.

As a wine enthusiast, it’s hard for me to say that a $60 bottle of wine isn’t a wise purchase. But as a money expert, I know that it’s not. However, we’re willing to give up a little today to have more tomorrow.

This is how we’ll achieve our financial and life dreams.

Image: oneinchpunch

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How a Rocket Scientist Manages His Money

aeronauticalengineer

Jason Lowery is a typical 29-year-old. He likes hanging out with friends, loves his family and spends weekends tinkering on his hobby car, a 1969 Chevrolet Chevelle. But unlike most of his peers, he’s completely debt-free, right down to his college tuition.

Born in the “lowly little” town of Lilburn, Georgia, as he jokingly put it, Lowery did well for himself. He graduated from Baylor University, in Waco, Texas, in 2010 with a bachelor of science in Mechanical Engineering with a minor in Mathematics. He is currently in grad school at the Air Force Institute of Technology, working toward a Master of Science in Astronautical Engineering with a certificate in Systems Engineering.

While most of Lowery’s undergraduate tab was picked up by the Air Force Reserve, which he joined freshman year, he still left college owing $60,000 in student loans. Adding to that, his late mother had a whopping $20,000 in credit card debt.

For someone whose parents always viewed themselves as being on top of their finances, Lowery was stunned. “My mom lost a lot of pride by having to handle that,” he said.

So he came up with a plan. “I said, ‘Tell you what. If you pay off $20,000 of my loans in your name, I’ll pay off your credit cards, and do it quickly,” Lowery recalled. In a year and a half, he would consolidate all his mother’s credit cards. Then, as his parents assumed his loan for $20,000, Lowery prepared to spend the next three years of his life paying off the remaining $40,000 in student loans — as well as those credit cards.

“I paid off all debts, including my mom’s, between January 2011 and February 2014,” Lowery said. “I paid my last bill 25 days after she died. It felt like kind of a proud tribute to her and all she taught me. Also served as a huge perspective change — life after debt corresponds with life after Mom.”

Here’s how Lowery did it, and what he can teach you about managing money.

A Crash Course in Differential Equations

To tackle his mother’s credit card debt, Lowery listed all her cards, noting their balance and interest rate. It’s a differential equations trick, he said. “I figured out every possible equation and chose the one that would amount to me paying the least amount in interest.” In the end, he went with the snowball method, paying off her debts in order from the smallest balance to largest, regardless of interest rate or monthly payment requirements.

“She had one card with $2,500 and a 29% rate, and I just nuked that card in two-and-a-half months,” Lowery said proudly.

At one point, he noticed an offer for a balance transfer credit card with a 0% interest rate. Though he knew it’d cost 4% to move his mother’s debt to the card, he “did the math,” realized “this is how much I’ll lose” and decided it’d be cheaper to take the 4% hit than risk paying more interest on the other cards. “My mom had severe interest rates,” he said. “They were really trying to crush her.”

Though Lowery’s typically wary of those offers, he worked diligently to pay the card off in 12 months before its higher interest rate kicked in. He was also realistic: “I knew I could pay it off before then,” he said.

Graphic 1 - Tracking How I Spent Every Dollar of Income

Cutting Variable Costs 

Since he works in the military, Lowery is fortunate to have a predictable income and some of his living costs covered, like healthcare. Certain tax exemptions also help. Still, Lowery fast-tracked paying back his debt by accounting for every dollar he spent.

“Less than 10% went toward eating,” he said, and since he was “used to poor living conditions because I was a college kid,” he skipped the fancy apartment with a dishwasher and electric stove. “It’s not like I was living horribly,” he assures, but he certainly adopted a penny-pinching mentality. He paid $550 each month for an apartment with internet and bought a used car to avoid monthly payments.

His mother, it seems, did just the opposite. “She was just constantly sending me stuff, even though she was recovering from this debt,” Lowery said. “I guess she was just used to a certain way of life, and when the recession hit and her investments tanked, she didn’t adjust her habits.”

He added, “I knew if I didn’t get my act together, that would happen to me.”

Once he finished paying the credit cards, Lowery continued putting the same amount toward his student loans. “I had already developed the habit of paying a lot each month,” he said. “And I was comfortable with living above a grandma’s house.”

The Color-Coded Budget

Lowery views money as colors. Whatever he spends is colored one of four ways: Green indicates assets that will gain value over time, such as retirement funds; red is for debt; blue is for costs of living, such as mortgage payments, home insurance and utilities; gold is for fun. The system, he said, forces him to be honest: “If you want to go out and have a nice meal, is that cost of living — i.e., food that’s necessary to eat — or is it recreation?”

Using Empirical Data 

As soon as Lowery gets paid, he records that information in his budget on Excel. (The charts shown here were all done with the software.) Next, he breaks down how much he’ll pay this month for things like insurance, rent and fun and then plugs in those numbers, repeating the process the following month.

As you may guess, he’s amassed a wealth of data on his spending behavior. “I don’t do automatic payments,” he said. “There’s a bias — you get too reliant on using computers — you don’t really know what’s going toward bills. If something were to creep, you wouldn’t have any way of understanding how it creeps.”

Put another way, if your electricity bill rises, “do you have empirical data on that?” If not, Lowery said you’re depriving yourself of information you could use to make smarter decisions. (Another great way to keep track of how your finances affect you is keeping an eye on your credit score. You can do this by viewing two of your credit scores, updated every 30 days, on Credit.com for free.)

Graphic 2 - My Budget Each Year When I Paid Off College Debt

Keeping a Script

“When I get my bills or buy anything, nothing I’m doing is against a script that I’ve already set for myself,” Lowery said of his budgeting mindset. “I even have money set away for wasting.” He continued, “it’s easier to plan stuff out and make the decisions when it’s not urgent. You’ll make the smart decisions when there’s no emotion involved.”

Whenever he finds himself going off track, he refers to his spreadsheet to see where to make adjustments. He also uses the spreadsheet to estimate costs for his goals, such as starting a family, taking a trip or souping up his Chevelle. Lowery’s budget guides his lifestyle, not the other way around.

“Everyone thinks engineers are nerds who work on one stupid thing, but military engineers are forced to think about things holistically,” he said. “When we think about how much something will cost to build, we’re brainwashed into not just thinking of unit costs but about life-cycle costs and how much it will cost to train someone to use it.”

When spending, ask yourself if your choices align with your big-picture goals.

A Heuristic to Live By 

In Lowery’s chart above, there is a quote that reads, “They say a hammer tends to view everything as a nail.” Expanding on this, Lowery said, “engineers naturally develop rules to explain things,” and this quote “reminds you that you are biased.”

That could be due to your education, your beliefs or what you’ve been told all your life. “If you’ve been told you’re a hammer, you’re going to view everything as a nail,” he said. “That’s how it relates to your personal debt — you have to recognize that you’ve probably been viewing things incorrectly.”

It’s a good guideline to live by — and like his budget, a helpful reminder.

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Main Image and Inset Images courtesy of Jason Lowery

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